Closing Bell - Closing Bell Overtime: Sell-Off Staying Strong 9/26/22

Episode Date: September 26, 2022

Stocks pulled back again today with yields and the dollar pushed higher. But, NewEdge’s Cameron Dawson thinks a relief rally could be on the horizon. She makes her case. Plus, top technician Katie Stockton breaks down the key levels to watch in the energy market. And, Brent Thill of Jefferies explains the big impact a stronger dollar could have on big tech.

Welcome to Overtime. I'm Mike Santoli, in for Scott Wapner. You just heard the bells, but we're just getting started. In a few minutes, I'll speak with KKR's Henry McVeigh. He's turned a little more bullish. He'll walk us through where he sees potential upside in the markets right now. But we begin with our talk of the tape. The sell-off refusing to let up. Stocks pulling back again today as yields push higher and the dollar continues to climb. The broader market finishing lower for the fifth straight day with the S&P 500 taking out June's closing low with about a 1% drop. Our first guest, though, says we could see a relief rally in the relatively near term. Let's bring in Cameron Dawson, New Edge Wealth Chief Investment Officer. Cameron, good to see you. Good to see you. We have a little bit of offsetting currents here, right?

You have a stock market that is looking oversold. A lot of people can see the makings of a bounce. On the other hand, the things that have been headwinds all year pretty much remain in place. How are you thinking about the prospect for some relief in the short term? And what would you be looking for as clues as to whether it means more? Yeah, we think the operative word is short term in any rally, because as we looked at the metrics today that we look for technical measures, we do see some signs of short term oversold. You can look at things like the percentage of names under their 50 day moving average at only 5%.

Those kinds of things support some kind of relief. But those medium-term headwinds remain in place. We still have pressure on valuations because of tight liquidity from the Fed. We still need to go through an earnings revision down cycle. So that doesn't change the trend that's lower. So maybe we get a little bit of relief in the near term, but we would be doubtful of that rally. Do you think it makes sense for it to essentially kick in right around here? I mean, oversold markets can be treacherous in both directions, as we know. Exactly, because that's when volatility will kick up. And that's probably when you don't want to be skewed one way or another with too much risk, whether you're long or you're short.

After you've seen such a big move like this, even if the view is negative to be overly short, you can be caught on the wrong side of a very rapid trade. Now, seasonality is still a headwind through the end of September and really doesn't get better until we get into late October. And seasonality is actually a tailwind post the midterm elections. And so that could be something that gives us a little bit of relief. You know, we have the dollar index up just 5% in a very short amount of time. Currencies don't typically move that much.

Looking pretty stretched by almost any measure to the upside, as well as short-term treasury yields. Again, relentless climbs, but also looking overheated. I just wonder if that means that, you know, something's at risk of buckling, or if it just means look those things need to pause and maybe give stocks a little

bit of a breather. And if they do pause that could be the key reason why stocks can take a breather to the upside because you have seen nearly parabolic moves in the dollar in yields. But I think that the trend in those areas is still very

powerful to the upside and we're not seeing any sign that those trends are getting exhausted or ready to break. And so with that being said that's again why you would be skeptical of a rally because we're still in this up motion on

yields on the dollar. So Atlanta Fed President Rafael Bostic today was out essentially saying don't doubt the Fed's resolve on inflation that's a very familiar message by now. We have like two dozen Fed speakers this week. So we're going to get that a lot the market's resolve on inflation. That's a very familiar message by now. We have like two dozen Fed speakers this week.

So we're going to get that a lot. The market's going to be kind of barraged with this idea. I do wonder, though, whether that's news to the market at this point. You know, you did see midday there was a little bit of a wobble in the market when some of those headlines hit. And then it kind of was just, you know, business as usual thereafter. So I wonder how we're supposed to what we're supposed to be listening for here in this current week's Fed Speaker. I think there's two things to listen for. The first one is the commentary around inflation

because the source of inflation, sorry, around unemployment, because the source of inflation is no longer about goods and supply chains. It's all shifted to services and and the labor market. So if they start continuing to talk about needing to see unemployment go higher, that's essentially them saying that they're willing to accept a recession. The other thing to watch for is they're likely going to get questions about financial stability. Markets getting roiled, you're seeing what's happening in the UK, all of that volatility. They're going to have these questions of what will you do if something really, really falls apart? And that's important because every time we've seen the Fed

step in and support markets over the last cycle, when things started to get wobbly, the inflation was so benign, it wasn't a problem for them. So it could change the reaction function of how willing they are to step in and support the markets. Right. Yeah, that's certainly the biggest fear, that the idea that they don't have as much policy flexibility as they don't believe they do. Although, you know, if you look at, again, where the dollar in yields are, the market's doing an awful lot of their job for them. You wonder whether that's going to start to matter within the stock market. I know you've taken a look at kind of where there seems to remain things like valuation and earnings risk and where maybe it's been more discounted. And, you know, in a similar vein, I keep looking at the top heaviness of the indexes and the top heaviness of the valuation in the S&P 500.

What are the implications for an investor right now that says, look, the market's down 20 percent on a three year time horizon? That's not a bad place to start thinking about getting more involved. I think the fact that we're still so top heavy in valuations would argue that maybe we should be looking at equal weight indices instead of cap weighted indices. So the top five names are about 22 percent of the index, but they're trading at 24 times earnings that compared to the rest of the index. But they're trading at 24 times earnings. That compares to the rest of the index at just 15 or 16 times earnings. So if you think that interest rates are going to remain elevated, those are particularly challenging for valuations within the tech space, which make up a lot of those top heavy names. So I think that there's risk that both tech as well as those top five names see more valuation compression from

here. So, for example, tech's still trading at a 23 percent premium to the market. And the last time that we had real interest rates this high, tech was trading at the same valuation as the market. So there's still risk within those tech, within that top heavy names, which means that maybe look at equal weight indices instead of the cap weighted. Right. Which, of course, you can you can own just as easily as the cap weighted these days through ETFs. Let's bring in CNBC contributor Courtney Garcia of Payne Capital Management and Marcy McGregor of Bank of America to kind of round out the conversation. Courtney, good to see you here. Just, I guess, tactically, at this point in time, we're almost nine months through the year. We're just about

nine months into a bear market. Are you still looking to incrementally play more defense or to get more aggressive? Yeah, I think you need to look at these things as opportunities because you brought up a good point here, right? Markets are down more than 20 percent right now. So especially as a longer term investor, you do want to make sure that you are taking advantage of these opportunities. That being said, I don't know if we're at the end of all this volatility yet. I think the markets are really going to be looking at every single data point that's coming out to show is inflation coming down or not. So just on Friday, we're going to get the PCE numbers. I think that'll probably be the next piece of data. We need to get some more jobs reports. But until we start

to see that inflation is coming down, we'll probably have a lot more choppiness. But as a longer term investor, there are still places to be adding to. So you don't want to just wait until things are going to come past, because I'm starting to hear that from a lot of clients like, oh, I'm not going to give you any cash. Let's wait until things calm down. You'll probably have missed the opportunity when things are already better. Right. I mean, wherever the low is, it usually happens fairly quickly, believe it or not, at least the initial bounce off the low. It doesn't spend a lot of time there. And, Marcy, I just wonder if, as a lot of folks have observed, you're starting to be able to, if you're starting from right now in the bond market to collect a little bit of yield up front and maybe have a sense out there with yield yields getting positive, you're getting paid for holding those things.

Is that something that seems like a great opportunity in itself? Does it reflect the fact that there's more to go in terms of what the Fed has to do on inflation? How should we think about it? We've been starting to extend duration a little bit in our fixed income side of the portfolio. We're still a bit below benchmark, but I think what you're going to see is interest rates that are in a peaking process. I think by the end of this year, early next year, you probably have a yield on the 10-year that looks like 4, 425 before it starts to move lower. So I think we're going to start seeing more opportunities to move longer duration in the fixed income side of the portfolio. But for now, we're staying pretty balanced. We don't want to

take any big swings right now with markets as volatile as they've been. And within the markets, within the stock market, you know, we've had this rolling bear market, Marcy. It started out with the most speculative stuff, as we've recounted many, many times. Maybe it still has some of the big mega caps, you know, ahead of it in terms of the full reckoning. But things like energy, which seemed like a pretty good place to hide out, is all of a sudden faltering. I just wonder what that suggests to you for where we are in this process of trying to, I guess, compress valuations and build in what we have ahead of us in the economy. My sense is, as painful as this has been, this has really been a bear market that's all about rates and the macro, of course.

But I think the next shoe to drop is earnings. We are forecasting an 8% year-over-year decline in earnings for 2023. That's definitely milder than your average historic recession. But if you say consensus is still at 230, I think between now and the end of the year, especially as analysts are looking at their year-ahead forecast for next year, you're going to start to see a series of cuts to earnings estimates. And I don't think it's going to be like ripping a Band-Aid off. I think this is going to be one of the big stages of this reset for the market is a reset in earnings expectations. Now, in the meantime, we're trying to say be really balanced, be really diversified. But energy is still our favorite sector here. You know, yes, I think in the very near term, you know, we're in shoulder season.

So there could be some more pressure. I think it's a buying opportunity until the global supply issues are really rebalanced. So that's going to be some time. You have to remember there's ambitious dividend and capital return plans for the sector. So I still like energy. I think we have a buying opportunity, but may see a little more pressure right in the near term. I'm interested in essentially the gives and takes on energy. I mean, Courtney,

is it a place that you still think because of those macro factors and because the way the companies are behaving, it's still a good place for fresh money at this point? I mean, I liked energy weeks ago, so I'm definitely going to like it now when it's even cheaper, right? But yes, I think a lot of this is being sentiment driven more so than the fundamentals and all those supply demand constraints have not been solved yet. And they're likely not going to for quite a while here. So I think if anything, you're going to want to look at energy as likely as something that will probably continue to do well. Yes, it might still have some more pain here, but I would agree. I think that's one of our favorite sectors at the moment.

And Cameron, I mean, so I do have to observe at the beginning of the year, it was, look, physical supplies are so tight. All you have to do is look at the price. The price is telling you physical supply is so tight. And now it's, well, the government was releasing SPR barrels, and that's some kind of extraordinary factor. And I just wonder whether we're just in this slow realization process that it's telling you that demand is slowing down somewhere, and the dollar is just no help to U.S. dollar-based crude oil prices. Well, and we also shouldn't forget that China,

the largest importer of oil in the world, with half of its energy consumption going to transportation fuels, has 65 million people in lockdown and has had rolling lockdowns from its COVID-0 policy. So I think the big question as we go into the party Congress in a couple of weeks is do you start to see some of this COVID zero policy get relaxed? And do you start seeing people start to travel again? And could that start to raise demand for oil prices and get us into a period where we're seeing oil prices move higher instead of lower? Yeah. I mean, without a doubt, they haven't fully broken down. They're still

above, I guess, kind of last year's highs and all that in terms of crude natural gas has been a little bit of a better spot. Marcy, just shifting to the global realm here, it's maybe early. It doesn't seem like it's a very accommodating place to look. But if the process still has more to go here in terms of trying to figure out what earnings are going to look like and valuations have to reset. Do you not see markets overseas, wherever overseas, as having maybe have more opportunities in terms of being contrarian? I think for now the U.S. is still the best house on a pretty stingy block. I think financial conditions continue to tighten, you know, between now and the end of the year. I think that means the dollar stays strong as the Fed marches forward. So I would rather be in U.S. equities relative to the rest of the world as a place to hide during some of this extreme market volatility. Now, I do think

there's going to be an opportunity maybe towards, you know, the first half of next year where, you know, more growth-oriented parts of the world, even more growth-oriented parts of U.S. markets start to show some interest. And I would have a shopping list ready. But no, I would strongly prefer U.S. equities over the rest of the world because I think the Fed is more likely to err on the side of overdoing it. And I think that causes more pain outside the U.S. than it does here at home. So I did think that you're not supposed to buy the nicest house on a bad block because you're kind of going to overpay for it. I guess the

question, you know, Cameron, is that the kind of thing where, you know, when you're looking to shelter yourself from what's happening in the rest of the world, is it okay to still prefer the U.S.? I think it is okay because if we think about what drives EM and international outperformance, it's big dollar bear markets. And so until you see the whites of the eyes of this dollar rolling over, and what typically happens after big bull runs in the dollar, parabolic moves higher, is big sharp downtrends in the dollar. And that's when we see non-U.S. assets outperform.

Until then, it is wrapped with risk because the challenge we have is we could see currency crises. We could see further compression of valuations. They've been value traps for the last 10 years. And so until we see a turn in the dollar, we do not want to go way overweight into international NEM. But we're getting close to wanting to watch that very closely simply because if you see the dollar, we do not want to go way overweight into international NEM. But we're getting close to wanting to watch that very closely simply because if you see the dollar rollover, it could be a

powerful trade. Yeah, there's no doubt about that. And I guess the big question to Courtney, as we get to this point in the year, you know, Jim Bullard of the St. Louis Fed at one point, not too long ago, said, I still think it makes sense to have most of what we need to do on rates done in 2022. Like this seems like there's a there's a scenario in which we get into next year and we look back and say, you know what, that was the payback year in terms of what you had to do with policy, resetting yields up from a decade of near zero, all this other thing. Are we getting or nearing a point where we're going to be able to see that destination?

I think the question I mean, nobody knows what's in the Fed's mind. They keep trying to tell us. But something maybe is going to force their hand to say, you know, we maybe can't get as much done as we thought we could. Well, I think that that's the hope, right, is that we do start to see an end of it. I think that's what the markets need is they need to see some sort of light at the end of the tunnel in order for them to price higher. And they started to see that, right? They made up a lot of the lows after June, after there was a lot of data coming out showing that inflation was in fact coming down. But now the Fed has come out over and over again and just showing how hawkish they're going to be. And that's why the markets

have just retraced their lows again. So we need to see some of this data. And I think ultimately, it's going to become, at a certain point, unsustainable if inflation is this high, if they keep raising rates. So yes, we're going to have to see that in the data coming forward. You know, and Marcy, I mean, Cameron alluded to this before, the employment piece of the of the Fed's reaction function. Paul McCauley in the last hour also pointed to that and basically said, you know, the Fed's kind of past anchoring on every new inflation number. They seem to think they have a employment, unemployment number in mind that they that they think is going to be necessary here. I mean, the story keeps changing, right? They were talking about headline CPI six months ago. It was really gasoline. It was inflation expectations. Then it

was, you know, core PCE. And almost now it's looking like, well, we got to get unemployment up to four and a half percent. How do you navigate that? So I think with all of the noise in economic data right now the Fed is probably looking at employment data on the way up in their cycle right through the hiking cycle and I think they'll look at inflation data to tell them when it's time to pause or to cut. So until we see some loosening of this labor market the Fed marches forward. Now I agree with the comments though you know when the market gets that first whiff that the Fed may pivot, and that's the wild part. We don't know what Powell's going to do. If the Fed, you know, backs off earlier than we think, and I think it's a story for the end of next year,

but if they back off earlier, the market's going to latch on to that. Again, this is why we keep saying to stay balanced, because I know we're all so skeptical of this market and the volatility ahead. But ultimately, it's periods of regeneration that follow market turmoil, crises like this inflation crisis that really boost long-term returns. So we've been talking to our clients, you don't want to miss these periods of regeneration. It's going to take a few months in our view, but have your shopping list ready. Get ready to reposition because once inflation comes down, I think it could come down a little faster than we're anticipating right now. And you could have a Fed by the end of next year that's ready to start cutting. Yeah, I mean, the S&P is

not far from basically having gone nowhere in two years. Sometimes that's a pretty good reset period. We'll have to see if it's enough. Marcy, Cameron, Courtney, thank you very much. Appreciate it. Let's now get to our Twitter question of the day. We want to know what's the biggest catalyst for stocks this week? Fed speak, the strong dollar, economic data, or something else? Head to at CNBC Overtime on Twitter to vote. We'll share the results later in the hour. Still ahead, key levels for the energy trade. Top technician Katie Stockton is breaking down the charts. Why she thinks the recent drop in oil could be overdone. We're live from the New York Stock Exchange. Overtime will be right back.

We are back in overtime. Oil selling off again today as the dollar pushes higher. WTI dropping below seventy seven dollars a barrel while Brent is now trading below $84 a barrel. But our next guest says, according to the charts, the recent move lower may be overdone. Joining me now is Katie Stockton, Fairlead Strategies founder and managing partner. Katie, great to see you. Interested in this tactical take on crude right here. Been pretty relentless since the springtime highs. What are you seeing that might suggest it's exhausting itself? Yeah, so we're looking at overbought, oversold measures, primarily things like the stochastics and the DeMarc indicators of which the DeMarc indicators are flashing one of their first oversold countertrend signals in some time for crude oil prices. That's just on the daily chart.

So it's only a short term indication. But in this tape, we'll take what we can get. Obviously, the momentum has been really strong to the downside behind energy of late, and it's been very strong to the upside behind yields in the dollar. And these macro moves really have just been relentless. So far, we've not seen the reactions that we would normally see to these kinds of signs of downside exhaustion or upside exhaustion, for that matter. So we can't have a lot of conviction in the signals, not until we actually see momentum shift to some degree. We would expect that to happen from a top down perspective this week. But just briefly, something similar, perhaps what we saw in late May. So from the top down, suggesting what that you're going to have to see sort of the dollar to maybe show some signs of reversing or how would the sequence play out?

Yeah, you know, it's hard to know exactly what would be the driver. My my thought is perhaps the market's really focused right now on two-year yields for one. But we are looking for an oversold bounce. Again, somewhat noncommittal to that. We're not recommending adding exposure and anticipation of it. But we do have some extremes also in our market internal measures. So we're looking for an oversold bounce in the equity market. And that would be something that would naturally be associated by a little bit of a relief from the momentum behind some of these moves, including the energy move.

What we saw on Friday were a lot of gaps down in energy stocks and the complex more broadly as well. And sometimes those gaps down also tend to be exhaustive. So we're looking at benchmarks like the energy sector spider or XLE, and that came right below its 200-day moving average. Now, that's not necessarily a positive thing, but we always think about the 200-day moving average as a cushion, not a precise point. And if you look back over history, it's actually pretty normal for XLE and a lot of other ETFs that represent sectors to find support very close to, but slightly below their 200 day moving averages. So there are some support levels

at somewhat nearby still. And you mentioned that just in general with the equity market, you would expect some kind of a bounce here or relatively soon, but with low conviction, because we did, you know, break through the closing low. It seems as if it hasn't responded yet in an aggressive way to the oversold backdrop. What would you be looking for in any bounce to try and interpret whether it's going to be meaningful or not? Yeah, and I would suspect just based on the comparisons that we're making that it isn't going to be meaningful. Not yet, at least. We don't have that kind of volatility washout that we're looking for before we get the next major relief rally. We do think we'll get another one later this year, but we don't think this is likely the start of it. We're looking at those market internals, things like the AAII data that you highlighted last week. These internals don't often get this

oversold. So it has us paying attention. And what we would look for is maybe several days of upside on the back of these signals, just using that sort of late May analog. And for the S&P 500, the initial resistance is roughly between about 39.45 and 39.80. Seems too aggressive to me, to be honest, as a targeted level for an oversold bounce, but it is the initial resistance. And therein, we could get a pretty decent bounce out of the market here. We would say that it's not a buying opportunity, but perhaps will provide a better selling opportunity where we would be essentially sort of managing risk yet again, would be on a breach of the summertime lows. And that's, of course, roughly 36.36.

That's a very psychologically significant level. We've already taken out the support level that I've been highlighting for some time around 38.15. And that breakdown has a very high likelihood of being confirmed on this Friday. And in terms of, you mentioned the two-year note yield, which really seems to be kind of setting the pace for other markets. Any signs there that that one is running its course, at least in the short term? Yeah, it's interesting. From those same DeMarc indicators on the daily chart, so short-term countertrend signals are pretty widespread in the Treasury market. They're

widespread in the equity market. Even from a bottom-up perspective, we see a lot of individual stocks just over the last two days. So it's a pretty new development that have these signals. And when you see a collection of them like this, both on the macro front and also bottom-up, they tend to be a bit higher conviction. Where these signals are confirmed oftentimes, and it's not exact for every individual security, but it's when you see a close that's above the close from a few days ago. And that just essentially shows a shift in intraday momentum. And that's what we would be looking for, to have more confidence that this is an oversold bounce that we can at least leverage to sell stocks at a better price. Got it, Katie. Great to catch up with you. Thank you.

You too. Thank you. All right. Up next, walk, don't run. That's the big message to investors from KKR's Henry McVeigh. He'll explain what he means and how he's navigating this volatile market. And don't forget CNBC's Delivering Alpha is just two days away. Closing Bell Overtime will be broadcasting live from Wednesday's in-person event. It is not too late to get your ticket. Use the QR code on your screen or head to deliveringalpha.com. Overtime, we'll be right back. Welcome back. Time for a CNBC News Update with Shepard Smith.

Hello, Shep. Hi, Mike. From the news on CNBC, here's what's happening. Hurricane Ian is now a Category 1 storm, fast-building strength just south of Cuba and heading generally toward Florida's Gulf Coast. That from the National Hurricane Center this afternoon. Governor Ron DeSantis issuing a state of emergency for all of the Florida counties. Mandatory evacuation orders also have been issued for some parts of Hillsborough and Pinellas counties in the Tampa Bay area.

A gunman with a swastika on his T-shirt opened fire at a school in central Russia today before killing himself. According to Russian state media, at least 15 people are dead, including 11 children. More than 20 others hurt. The shooting happened about 600 miles east of Moscow. And two massive sinkholes opened right next to each other just outside Guatemala City over the weekend. Three people rescued from the pits, but two others are still missing. The sinkhole is said to be roughly 50 feet deep. Tonight, tracking Hurricane Ian live from Florida

and Cuba, plus an NBC investigation into ride-sharing drivers becoming unwitting drug mules. And we'll watch together live as NASA tries to knock an asteroid off course on the news. 7 Eastern, CNBC. Mike, back to you. All right, Jeff, thank you. Cleveland Fed President Loretta Mester saying moments ago that with inflation unacceptably high, the central bank will need to act aggressively, lift rates higher, and keep policy restrictive for longer. Let's bring in Henry McVeigh, who is chief investment officer of KKR's balance sheet and joins me here at Post 9. Henry, good to see you. That's great. Thanks for having me. Been a pretty consistent message. Market's been trying to absorb it in terms of what the Fed

has to do, whether it's going to essentially have to do a lot more damage, I guess, to the economy and really the global economy, given what's going on with the dollar and everything else. What's your read on that? I mean, we continue to use this mantra, walk, don't run. I think you've referenced that earlier. I think that's probably been the right call. I mean, ultimately, the Fed's got two issues on the inflation front. One is rental incomes or owner's equivalent rent. That's about a third of the CPI. And the second is wages. And, you know, our data would suggest that those are going to stay stickier for longer. And so we've had a view that services inflation would stay higher well into 2023. I think at this point, we've gone from

kind of dovish during the summer to hawkish this month. I think we need to find the balance in the middle. I mean, ultimately, we are seeing the impacts of higher rates on activities like housing. And I think that cyclical slowdown will start to show up in 2023. So if I put on my central bank hat, I would say, let's not only look at labor, which Chairman Powell referenced, because that's a potentially lagging indicator. And let's also look at credit spreads and dollar, as you mentioned, and financial conditions. And they would pretend that we'll probably have some sense of slowing going into 2023. You know, it would seem to make sense, right? You know, they know that their policy acts, you know, with a delay.

You've seen what the markets have done in terms of tightening financial conditions. But they seem so hypersensitive to the idea that markets would take any hint and undo some of that. Is that well grounded? so hypersensitive to the idea that markets would take any hint and undo some of that. Is that well-grounded? I think we're in an unprecedented period, at least since the 1970s, where inflation's absolute level is so high, and we haven't seen the trajectory starting to come down. So I think that they had to send a stern message. I do think it's going to take hold. I mean, we've been living in a world where there hasn't been any alternative to cash,

and now cash is probably going to yield 4% or 5%, and you're starting to see that with investors moving around. I think at this time, we said walk, don't run, but there's some pretty interesting opportunities emerging. I mean, if you have the ability to go into shorter-duration fixed income, that looks very interesting to us. Credit is interesting. We've been pounding the table since 2020 on the real assets, particularly infrastructure, real estate credit. There are things to do. And I would say even in our private equity, we're not as active right now, but the market is setting up for probably a more active 2023 where you see corporate carve-outs, public to privates, and there are going to be a

lot of growth companies that were funding themselves at incredibly low rates where I think they'll see or have to have to come to market to raise capital. And hopefully we can be a good, good partner to them, too. If you think that credit is starting to look interesting, do you think that the economy is not going to have too much of a seizure? I mean, this is a great question. I think that overall we've been talking about inflation, inflation, inflation, and that's going to run through probably year end. And ultimately, we'll get some more visibility on where the how high the Fed and the ECB are going to go. Then we're going to transition to the negative impact of inflation on earnings.

And that'll probably be the first part of the 2023 story. Markets tend to bottom when a couple of things happen. One is when the ISM bottoms. We're not there yet. Second is the Fed stops tightening. Clearly, they told us that's not going to happen. And the third is in about in the middle of a recession. So you've got to be able to understand what are your themes, where do you want to focus and start to lean into those. Most of our capital is kind of five to 10 year capital. So we're not trading every day. So today is a much more interesting day than it was six months ago, than it was 12 months ago.

For those that are shorter in duration, I would look for those signposts that I just referenced. Right. So you mean that the valuations have reset. Obviously, yields are higher now than they were eight months ago. So if you have a multi-year horizon, then it's a more advantageous spot. But I do think, and we've talked about this being, you know, when we talked before, a regime change. I don't think large cap tech is going to carry us anymore. I think that people got to get over that. That was a great tenure.

Second is long duration investment grade debt. And that was a great place to be. Those two things don't work as well in the environment that we think is going to occur at KKR. We've shifted our balance sheet to reflect that. We've brought a lot of investors along to reflect that with us. And so I think there's opportunity. I just think it's going to look a lot different than it did the 2010 to 2021 period. On the idea of infrastructure, and you mentioned real estate credit. I'm just interested in how the market's been treating those things that are real assets with long duration. Sometimes

they have leverage. Sometimes they're kind of the, you know, the marginal price is set by somebody with leverage. Real estate stocks, for example, have been pretty poor lately. How does that fit together? So I think real estate equity hasn't, the public markets have repriced more than the private markets on that. The credit is actually very interesting. And while we're seeing a slowing in housing, a lot of these mortgages are incredibly high quality relative to where we were the last cycle. That's a big difference. So that's interesting. Structurally, most clients, when we look around the world, are actually underweight infrastructure. They had a bad experience after 2007. They never came back in it. We do a lot of survey work. They're not there.

And that asset is doing really well, particularly around things such as data, fiber. There's a lot of opportunity there. So we've been deploying a fair amount of capital and our balance sheet changes reflect that. Just real quick on Europe. I mean, everyone who believes that maybe the risk reward is getting better says, but what if Europe has, you know, the worst winter, however you want to define that. Yeah. So what's interesting is actually, you know, put on winter, however you want to define that. Yeah. So what's interesting is actually, you know, put on my old hat as financial services, bank stocks in Europe are actually outperforming on a relative basis, which nobody's talking about. Second, I would say is you really can't just say Europe. I mean, I just got back. I think we were talking about this. You know,

France is actually doing really well. We had a group of CEOs in Paris. They're doing better than a lot of the some of the stuff we've seen in other parts of the world around the tech and the innovation. That's one thing. The UK, the policy is definitely non-traditional. That's one where it's probably a little more of an adult swim only. You've got to watch the currency. So I think it's region by region. I think it also depends on where you invest. We recently did a deal around fertility or e-bikes or supply chain software. So Europe's got some good things going on. The energy issue is real. It's going to create structural changes. And we're going to go through a digestion period right now. And that's why the market is reflecting what it is. Teams, not macro. Henry, great to catch up with you.

Thank you for having me. Appreciate it. Up next, big tech taking a big hit as the dollar surges. We'll break down what's at stake for some key tech titans with a top analyst after the break. But first, throughout Hispanic Heritage Month, we're celebrating our CNBC teammates and contributors. Here is Closing Bell and Closing Bell Overtime Associate Producer Karina Hernandez. I am a first generation Mexican-American and I am so proud of that. The reason I am where I am a first-generation Mexican-American and I am so proud of that. The reason I am where I am today is because of the sacrifices my parents made to move to this country to provide a better future for my sister and me. It's those

sacrifices that give me the drive to excel in my career and make their sacrifices worth it. My advice to other Latinos is echa le ganas, which means to give it all you've got and don't wait for others to take a chance on you. Put yourself out there and take a chance on yourself first. We are back in overtime. The dollar index pushing higher again today. It is now up more than four and a half percent in just the past two weeks. And that breakout could have a big impact on big tech. Let's bring in Brent Thill, senior tech analyst at Jefferies, to run through some of these cross currents. Brent, good to have you here. Now, you know, I look at something like the software index. It's down 40

plus percent from its high. Clearly, there's been valuation pressure, has been the rate headwinds and all the rest. How much incrementally is currency going to matter to these companies' earnings and to the stocks, do you think? It matters. It's not going to be the core focus as many tech investors will look at constant currency versus reported. But just to give you an example, for all of our large cap names, FX has been a two to five point headwind on their numbers so far. Microsoft guided to a negative four to five percent hit point hit coming up and it's going to be way worse. So they're going to miss on reported given given the what's happened with currency.

Investors will go back to constant currency normalize. But I think there's no question there's an ongoing headwind on reported numbers. Secondarily, what happens for those European companies that are looking at prices that have gone up? So, for example, Amazon, AWS prices in U.S. dollars, at some point, do they push back on some of these deals and say, look, we need a little give on the price? We haven't heard that, but could that start to happen? So I think clearly this is another headwind on top of a fundamental slowdown in tech overall. So we're just kind of in a double whammy, if you will, on FX as well as now constant currency growth rates are starting to decelerate because the macro headwinds are coming in.

Yeah, I mean, the Amazon example, and I know it's hypothetical, but it is an interesting one, because I was wondering how much are we talking about just translation effect into earnings and how much is it a competitiveness issue where these companies have to actually take a little bit less on the revenue side? Is there a way to break that down for any of the big names? It's primarily translation today. There hasn't been many companies we cover that have said, hey, we've seen things stall off because of the strength of the U.S. dollar. That could happen. And so that's another risk that we enter into on top of the 15 other risks that we're going through right now. And again, just the comps and the overall cut in IT budgets we're seeing, the overall

slowdown on the consumer. I mean, it's just another concern. And this has got everyone running away from tech still. So we continue to see our institutional clients be very skeptical short term on tech. But we're starting to hear the, hey, I need to look at these over the next three to five years, because if I have duration, they're really starting to get interesting. Yeah. What themes or kind of product areas are starting to make sense where you have a chance to leg into them? I think we're getting a lot of questions about the great growth assets, not the Microsofts or Apples or, you know, back to the names that have great growth.

The companies like Snowflake, Datadog, we're hearing more questions around, hey, when can I get kind of not the established guard, but the up and coming stories that are growing 50, 60, 70 percent with profitability? That's a big theme. I think the theme of looking at dislocated great stories like Adobe, you know, the Figma deal knocked more off their market cap than the value of the deal. Adobe is a phenomenal management team. It's a product that users love. That's a name that, you know, again, the shorts aren't going to cover that for a while, in my opinion,

but they're getting interested in looking at Adobe on the long side. So I think there are a lot of great conversations. It's just lack of long-onlys committing to this tape right now. We just don't see it on our desk yet, and we continue to wait for that to come, but we haven't seen it. Yeah, I'm sure folks feel like there's no rush to buy just yet. We'll see if that starts to change. Brent, thanks very much. Thank you.

Talk to you soon. All right, up next, we're tracking all the biggest movers in overtime. Steve Kovac, what's on deck? Hey there, Mike. Yeah, Elon Musk is in the news again today. And moving shares is something other than Tesla. And another meme stock is rising, but not quite going bananas. And finally, some major C-suite changes coming in tonight.

I'll give you all the details on that when Closing Bell Overtime returns after this. We are tracking the biggest movers in overtime. Steve Kovac has all of it. Hey, Steve. Yeah, Mike, Twitter shares rising following CNBC's reporting that Elon Musk did not have his deposition today with Twitter's lawyers ahead of the two sides meeting in court as Musk tries to back out of that $44 billion deal to buy the company. WSJ reporting Twitter CEO Parag Agarwal also did not have his scheduled deposition today either for personal reasons, adding these two are not a sign of a settlement between the two sides. CNBC reporting Musk's deposition will be rescheduled soon, and the trial between Twitter and Musk is scheduled to begin in Delaware

in just three weeks. Meanwhile, shares of Ape, or AMC preferred stock, up about 2% after hours after the company announced it would sell 425 million more shares. AMC originally launched the preferred shares in August as a reward for the so-called apes who have been driving the meme stock since last year. AMC shares are up nearly 2% as well after hours. And finally, some C-suite changes to tell you about Southwest Airlines president and COO Mike Vandevin stepping down at the end of this month. Andrew Watterson has been promoted to be the new COO effective next month. And meanwhile, the CFO of cloud software company Splunk leaving the company to work at a new startup. Splunk says it's already begun the new search for a CFO and shares are down nearly 1 percent after hours.

Mike. All right, Steve. Thanks very much. Still ahead, our two minute drill. One money manager has a double dose of dividend plays. We'll bring you those names straight ahead. Over time, we'll be right back. Last call to weigh in on our Twitter question of the day. We want to know, what's the biggest catalyst for stocks this week? Fed speak, a strong dollar, economic data, or something else? Head to at CNBC Overtime on Twitter to vote. We'll reveal the results after this break. Plus, our two-minute drill.

Overtime, we'll be right back. Welcome back to Overtime. Let's get the results of our Twitter question. We asked, what is the biggest catalyst for stocks this week? More than a third of you went with the strong dollar, edging out Fed speak and economic data. Certainly, the dollar has stolen a lot of the oxygen the past week or so. Time now for today's two-minute drill. Joining us now is Jeremy Bryan, Gradient Investments Portfolio Manager. Jeremy, good to see you here.

I mean, it's pretty much everyone agrees you can't declare that the market's out of the woods, but are we closer to the other side of the woods than the beginning? Yeah, yeah, I think it's getting less dark, hopefully. You know, the real reason I say that is primarily that I think we have peaked inflation. So I think inflation is going to decelerate for the remainder of the year. And so hopefully we're closer than not to peak Fed hawkishness as well. So if that's the case, I mean, the economic sentiment and just this overall market sentiment is so negative right now that any silver

lining in that, I think, would set the stage for a re-rally going forward here. So I think we're closer to the light than further into the darkness here. We have thought that before, haven't we, though, that we were at peak inflation and Fed hawkishness? Yeah, yeah, no question. And could this get worse? Absolutely. But I mean, we've revisited, you know, mid-June lows now, and we've just actually cleared through the close. So we'll see what happens on that. We didn't close the intraday, but we'll see what happens there. But, again, you know, everything, sentiment perspective, is so negative right now

that even the slightest bit of reversion probably leads you to a rally here in the short term. Yeah, seems like it would be the setup if nothing breaks in the meantime. And now in terms of individual stocks, I mean, I don't know, close to half of all stocks are even down from before the pandemic. So there's got to be a lot to choose from. Talk a little bit about public storage, PSA, the REIT. Yeah, I mean, the common threat across this landscape is kind of the resiliency stocks, right, is that public storage is one of them. It's shorter term contracts, it's self-storage types of things. And people tend to get worried about the housing and do they pull things out. Over longer periods of time, they

don't. And usually you get more storage and you get more pricing increases as a result of that. So it tends to be a very resilient model with a good dividend yield and now trading back to 2020 valuation levels, which I think are, you know, a bargain at this point right now. So that would be the first one. Again, it's the under the radar type of stock that just blocks and tackles. Yeah, for sure. It doesn't get talked about too much. Medtronic, medical device maker, used to be, I mean, years ago, used to be kind of a go-go growth stock, but it's been a while since that was the case. Very much so. Now it's much more, you know, they've had some supply chain challenges, no question about it, but their businesses tend to be pretty resilient.

Again, at the end of the day, if you need operations that they provide, you're probably going to get them, right? And so in that regard, I think, again, we've had some lows here. We've actually created a new, easily, 52-week low. So I think we got some opportunity for some upside here going forward. If they get those supply challenges met, they could provide some upside because it's a 3-plus percent dividend yield that's trading relatively cheaply. Definitely a discount to the market at this point now. Yeah, absolutely. Thirteen times or so. Willis Towers Watson, kind of a pension consulting insurance brokerage, I guess. Another one we don't talk too much about. Exactly. I'm really hitting you on the under

the radars today because really, I mean, it was done on purpose is these are the things that aren't talked about that just execute. They block and tackle, they do what they need to do. So from our perspective, the plan consulting business, you know, it tends to be very resilient. And so for people looking for ebbs and flows and massive amounts of inflection points, these probably aren't those names, but these are good block and tackle companies that are now trading at pretty significant discounts to their long-term averages that we think could be in a rebound over the next six to 12 months. I guess the big question that's hanging over pretty much every company is, OK, the stocks are down a fair bit. Have the earnings forecast become more realistic?

You know, is it already priced in? And have you have you looked to try and make sure that the companies that you're interested in are in that situation where there's not going to be further downside surprises? Yeah. I mean, the one that's probably most at risk is Medtronic just because, again, if supply chain issues are still resilient through that or if elective procedures get delayed, which I don't think that's the case, but that could be the one most impacted.

But if you look at long-term history of the earnings revisions in these companies especially, they don't tend to revise a lot unless we're in massive economic calamity, which is not our base case scenario by any stretch of the earnings revisions in these companies especially, they don't tend to revise a lot unless we're in massive economic calamity, which is not our base case scenario by any stretch of the imagination. Okay, and what are you not going for that maybe looks like a value trap quickly?

Yeah, I mean, higher, you know, what I would say higher valuation type of heavy cyclical stocks. That's gonna be a tough one right now. FX is extremely high. So if you have a global allocation and that kind of stuff and then secondarily, we do see some economic slowing. So if you're already carrying a high valuation and you're in

that ultra cyclical area, that's going to be a challenging spot right now. Yeah, for sure. Some people like sickles, but they got to be got to be cheap. I guess we might be looking at a global recession here after all. Jeremy, I appreciate the time today. Thanks so much. Thanks. Take care.

All right. Well, that will do it for overtime.